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MOSL: AMARA RAJA (Buy)-In-line; strong aftermarket offset by weak OEM/Telecom

Amara Raja: In-line; strong aftermarket offset by weak OEM/Telecom

(AMRJ IN, Mkt Cap USD1.9b, CMP INR786, TP INR885, 13% Upside, Buy)

 

Robust performance as expected; market share gain continues

• AMRJ’s performance was expectedly strong with ~26% YoY PAT growth. More importantly, its volume growth in aftermarket continues to endorse our view of value migration from the unorganized to organized segment.
• We marginally upgrade our EPS estimate and maintain Buy with a target price of ~INR885 (~20x Mar’22E consol EPS). 

Margins driven by mix and RM

• Revenue/EBITDA/PAT grew 3%/12%/26% YoY to INR17.5b/INR2.8b/INR1.6b in 3QFY20. For 9MFY20, revenue/EBITDA/PAT increased ~1%/20%/44% YoY.
• Revenues were driven by strong volume growth in the auto aftermarket business (4Ws: +11% YoY; 2Ws: +16-17%), 4W exports and the UPS/rail business. However, weakness in the OEM (15-16% decline) and Telecom (13-14% decline) businesses, along with the impact of lower lead prices (2.5-3% YoY decline), resulted in moderate revenue growth.
• Gross margin of 35.5% (+270bp YoY, -40bp QoQ) exceeded our estimate due to inventory changes and a better mix.
• However, EBITDA margin expanded at a lower rate of 130bp YoY (-100bp QoQ) to 16.2% (our estimate: 16.1%) as higher-than-estimated other cost diluted the benefit of gross margin improvement.
• EBITDA increased ~12% YoY (-3% QoQ) to ~INR2.8b. Lower tax boosted PAT growth to ~26% YoY (~INR1.6b).